A Call for Fairness in the Tax Code
http://thedianerehmshow.org/shows/2012-01-30/call-fairness-tax-code
Last week in his State of the Union address President Obama called for tax reform to ensure fair play. He proposed what he called a Buffett Rule: a minimum federal income tax of 30% for people making over $1 million. Republicans say he’s pushing class warfare and stifling economic growth in a period of weak growth. GOP presidential hopeful Mitt Romney is facing criticism for both how he made his enormous fortune and for his seemingly low tax rate, but, as many analysts point out, most households pay at an even lower rate. Please join us to discuss the tax rates and he economy.
Guests
Alice Rivlin
senior fellow, Brookings Institution, vice chair, Board of Governors, Federal Reserve System (1996-99); director, White House Office of Management and Budget (1994-96); and founding director, Congressional Budget Office (1975-83).
Stephen Moore
member of the Wall Street Journal's editorial board.
Jared Bernstein
senior fellow, Center on Budget and Policy Priorities; former chief economist and economic policy adviser for Vice President Biden.
David Leonhardt
Washington bureau chief, The New York Times.
Comments
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The position of the corporate tax rate in conjunction with the personal tax rate does not make sense to me when we consider the fact that corporations are considered a separate entity for free-speech purposes in Citizen's United. We cannot have it both ways.
Kathleen hit the nail on the head the almighty dollar. Companies have changed and it is always about their bottom line and investors. Only give them a tax break if they create jobs in this country
It became patriotic when some people decided "fair share" was whatever someone else's greed decided.
Whenever I hear someone say "fair share," all I hear is gollum lusting greedily for someone else's gold.
There is a fundamental logic issue here based on these starting points:
-businesses have their first responsibility to their share holders, those incorporated in Delaware anyway.
-businesses take investment cash from anyone, anywhere.
-people and companies invest where they see the best potential in the foreseeable future.
None of these are evil, but I take them as facts. So, when the Bush tax cuts were put in, where do the investment advisers tell them to invest? Overseas at least part of the time. From this I suspect the Bush tax cuts lead to more investment in China than in the US.
In general, until the 60s or so the US businesses used to have common interest with the country of the US. Today, businesses are global and the shareholders are in Europe, China, Japan, as well as 401K plans and wealth Americans. This calls for a new view, but American politics today are not up to the tasks.
It is not fair for republicans on one hand to blame the president for the unemployment rate and on the other to say that only job creators can create jobs. I think that the last decade is proof that trickle down economics doesn't work. It only gives rich people more incentive to b greedy.
What a joke. It is a discussion of tax rates (which requires dividing one's tax (or marginal tax) into one's income (or marginal income) to determine the percent paid = rate. But one joker thinks the tax paid by a corporation (on THEIR income) is relevant to the tax rate of Buffet on dividends HE receives! (BTW, it is important to recognize that dividends are double taxed because it was first taxed to the corporation, but that was not stated, and regardless it is not relevant to tax rate).
Then another joker says that payroll taxes should be included in a discussion of individual tax rates! The discussion is on INCOME taxes, and besides those payroll taxes are 1) medicare which is levied on all earned income without limit (although the benefits are the same for all regardless of amount paid), and 2) social security which is only levied on the first $100.1k of earned income, so obviously lower earners pay a larger portion of their income to it than do higher earners - but that is only fair since the benefits are capped based on the earnings on which the tax was paid (so assuming the limit were in past and will in future always be $100k, a person earning $100k would pay the same amount as someone earning $1mil each yr, and both would receive the same benefits; fair is fair).
Please choose a different panel next time.
Let's get this clear. Citizen's United, and other decisions prior, didn't create new rights. All it said was that people don't lose their right of free speech when they exercise their right of assembly.
All the rest of the analysis works the same way. If you tax a corporation, you are taxing the individuals that make it up. It's the same reason it was decided that stifling the speech of the corporation is no different than stifling the speech of the people who make it up.
If we want more hiring we need to lower these inflated wages so business can afford it. One of the first things Mitt Romney wants to do is roll minimum wage back to $6.50 an hour, which is a start. But why do we need minimum wage at all? Get government out of the job market and free workers and employers to set their own wages.
Questioning the payments of the fabulously rich is deemed 'class warefare' whilst taking to task the unemployed and the grindingly poor getting food stmps is not! This is the old 6th grade smoke screen trick of accusing the 'other' of doing the very thing that you are doing to take the heat off one self. Unfotunately, the whole political discourse has degraded to similar infantile tactics.
Just to clarify, this is NOT Congresswoman Debbie Wasserman Schultz writing this comment.
What an excellent show. Diane's ability to assemble knowledgeable and plain spoken experts is exceptional. Her ability to keep them on point as well as clarify their points is so beneficial. I learned so much from the show about the impact, or exaggerated impression of the impact, of various elements of our tax code. It always so much more illuminating when all of the guests base their conclusions on clearly stated facts....even when they don't agree on the conclusions. Today's show was such an excellent example of civil people who don't agree yet can talk with each other. THANK YOU!!
@AtX girl
Excuse me, but how does the last decade prove anything? Do you have a control? Do you have an alternate universe where you can visit and say with certainty that the alternative is better?
This is what I hear from you people with your unprovable counterfactuals. You say that we had "trickle down," and then you say that we had a growth rate of x, and the fact that it wasn't some number greater than x is proof of its failure.
Well, where do you get the idea that it would have been higher? Can you prove that things wouldn't have been WORSE otherwise?
See, I can do this. I got up today and AtX girl was still in this mortal world. On the way to work, I got into an accident. That's proof that if she had died in her sleep last night, I wouldn't have had the accident.
Without something to measure it against, you're just speaking to your own biases.
One of the arguments here is to not make the rich pay more in taxes because it will lead to more growth. After that the tax fairness issue can be addressed. But often, the rising tide floats all boats often does not happen. Capital does not necessarily flow to job creation as we are all experiencing. Without job creation a large part of our population are unable to participate in a growing economy. It is therefor more important that fiscal policy address job creation and putting more money into consumers pockets. Fairness is not only fair it is good for growth!
I despise progressive taxes on income as they are decidedly unfair but since we seem to be obsessed with them why not make a progressive flat tax. By this I mean all income of any type above a certain point is taxed at 30%. If you make that number 50k then anyone making less than that pays zero income/CG taxes. Someone making 100k effectively pays 15%, 200k 22%, 500k 27% etc.
The obvious debate is that 50k number but if you take the mean average of income from all states you have a good starting point.
This would generally mean lower taxes to all Americans with a very simple, top heavy tax system. If you wanted to complicate it beyond the single 50k deduction you could allow deductions for all medical and educational expenses.
A similar model with a number chosen to represent the average American business would work equally as well and provide a significant boost to small businesses.
@ Drew Kelly
"The purpose of our government is to help ensure their profits so more will trickle on down & economy and employment improves for all."
"And Corporations are philanthropic. Surely they know what’s best for Americans."
I'm not sure if your comments are intended to be sarcastic or not. Sadly, I think you meant it seriously. I say to you:
Spoken like a true slave owner.
1. The purpose of our government is NOT to ensure profits.
2. You apparently have no knowledge of American history - early or late.
3. Regarding your comment about letting the market decide: Oh yes, the markets did a great job on mortgage-backed securities.
rfffwh, we have a schizophrenic system right now. our taxes are out of whack and government is meddling in business to promote its political agenda. Favoring some businesses over others and not promoting stability in regulation and taxes results in the distortion that this isn't working.
If you give businesses the sense that they will be able to plan for growth and project how much money they will make from year to year AND put more money in the hands of consumers you will have economic growth. One without the other results in the stagnation we have now.
marshach the markets did a great job falling into the trap set by the government that it established when it started trying to manipulate the market.
I see a lot of people condemning free markets based on recent failures but we haven't had a truly free market in a very long time. As long as the government tries to artificially set the balance of the markets we'll continue t get these bubbles and the eventual collapses that come with them.
@marshack
Perhaps you could explain how the second-most regulated industry in the US behind medicine somehow manages to produce free market outcomes.
Perhaps you should read up on how Basel II and bank capital requirements colluded to produce this outcome, or how political objectives forced a need to come up with creative ways to diffuse the risk as broadly as possible.
Or maybe, just maybe, you can explain why none of this ever happened before. If creating risky mortgages was such a sweetheart deal, why the heck did it take regulations to get banks to lend to sketchy borrowers in the first place? There was a time when it took a rather large down payment to even be considered for a mortgage, and this back in the days when there was less regulation.
Something in your comfortable little narrative doesn't quite work.
I keep hearing that the capital gains tax should be low to encourage investments because investments create new jobs. My question is, does the low capital gains tax rate apply only to investments in companies that create jobs in the United States?
I never did hear an explanation of why we've reached this point of extreme income inequality.
I am sick and tired of hearing the accusation of "class warfare" when someone wants to talk about the enormous inequality in our society. Conservatives use that buzz phrase the same way they use the word "socialist". The purpose of using such buzz words and phrases is to to indirectly accuse someone of being un-American, and thereby shut down the conversation. Pointing out that there is vast inequality in America is not "class warfare". If you want to know what real class warfare is, I will tell you:
* Mortgage lenders and banks aggressively pushing predatory mortgage lending to people who obviously cannot afford the loans
* Lenders pushing high-interest payday loans to people who can least afford them.
* Bankers creating complicated rules and practices that maximize penalties
* Wall Street investment banks knowingly creating investments that are worthless, thereby defrauding investors (including the 401Ks of millions of regular working people) out of billions of dollars
* Republicans trying to prevent the Consumer Financial Protection Bureau from getting off the ground.
My question is: Why do these discussions always focus on federal income tax rates and at best give lip service to the other taxes we pay?
Federal income taxes only ammount to 30% of the taxes we pay. The other 70% includes social security taxes, property taxes, sales taxes, and gas taxes. They shift the tax burden onto the working poor and middle class. But almost no one takes a serious look at those numbers.
If you do the calculation with those other taxes, a single minimum wage earner pays over 30% of her wages in taxes, even though she may next to nothing in federal income taxes.
Here's a website that goes through the calculation of ALL the taxes we pay for the working-poor, the middle class, Warren Buffett, and Mitt Romney: fairsharetaxse.org.
Peter Gloor
Branford, CT
I want to comment about treatment of carried interest in the IRS tax code.
This special provision, lobbied for by privated equity firms, is why Mitt Romney tax rate is so low.
Most people pay the wage rate on taxes( i.e. 20-35%), then pay another 15% capital gains on their investments. The "carried interest" tax loophole exempts favored indivuals from paying the wage rate on their labor. Mitt Romney for example, who qualifies as a partner who manages a private equity and hedge fund qualifies. He enjoys the 15% capital gains rate, even though he is investing someone else's capital. I wish I had the resourses to lobby for such favorable tax treatment as his group did.
@Pteromandias
1. What is the "second-most regulated industry in the US"?
2. "Perhaps you should read up on how Basel II and bank capital requirements colluded to produce this outcome, or how political objectives forced a need to come up with creative ways to diffuse the risk as broadly as possible."
What outcome and risk are you talking about?
3. "If creating risky mortgages was such a sweetheart deal, why the heck did it take regulations to get banks to lend to sketchy borrowers in the first place?"
Ah, yes. Blame the borrowers. If the only thing that happened was that the people who took liar-loans got foreclosed upon, we would not have had a financial meltdown. But it didn't stop there. Someone knowingly took those worthless loans and bundled them up to create mortgage-backed securities. That created a huge demand for more mortgages, which encouraged mortgage lenders to go out and make more and more bad loans because they knew they could make tons of money without risk because they wouldn't be holding the mortgages. Then the geniuses at the credit rating agencies gave the securities high ratings, which encouraged investors to buy the garbage. And then, someone decided to insure mortgage backed securities with credit default swaps.
The next time you want to blame the borrowers, tell "the rest of the story."
@Will_nonya
"... the markets did a great job falling into the trap set by the government that it established when it started trying to manipulate the market."
Please be specific. What "trap" did the market fall into, and what government manipulation are you talking about?
Thanks for the website link.
You're right. In addition to the unfair burdensome rate on the working class, is the effect of monetary policy by the Federal Reserve. You can learn more about this devastaing effect on our savings and ability to accumulate wealth from the Ron Paul campain.
We need to hold both political parties accountable.
Did not read every post here today, but I seem to rarely hear the following quesiton discussed. Tried to get it in on the show but didn't make it.
No one has mentioned the "moral" argument of taxation. Yes, those in the upper income tiers have successfully used our (relatively) free system to earn wealth. But, when a small portion of Americans are already paying 70, 80, or 90% of income taxes, where is the MORAL argument for the Federal Government to take more of the fruits of their labor? Is there ANY upper limit to what the government can confiscate?
Income is income and should be taxed at the same rate, whether it is earned or investment income.
The stock market creates a means for a public corporation to raise capital by selling shares.
Individual investors buy stocks to provide future income. Institutional investors (pension plans, mutual funds, etc) also invest to make money.
The notion that wealthy individuals invest to create jobs is nonsense - it is to make money just like everyone else.
I disagree with comments regarding Warren Buffett - that he is already paying taxes in the form of corporate taxes. The last time I looked Berkshire Hathaway was a public company. BH pays corporate taxes - not Buffett personally. Buffett pays taxes on his earned income and capital gains on his sale of BH shares.
Using the same logic I pay corporate taxes via each company in which I own stock. Give me a break.
Regarding the comment of the caller from Grapevine TX: I think you all missed his point. I think he was saying that very wealthy people are able and willing to invest in tax free bond issues, many of which do finance our schools and other local projects, and he seemed concerned about that incentive being taken away. But I couldn't hear him very well; maybe I too missed his point. Thanks.
bamoore wrote:
"BH pays corporate taxes - not Buffett personally."
You're entitled to your own opinion but not your own facts.
Buffett OWNS 30% of BH.
If the company you OWNED were getting taxed at corporate rates, would you not count that in your effective tax rate?
Give ME a break!
I believe that taxes like everything else must reach equilibrium. Ronald Reagan on National TV stated that by lowering federal taxes, local governments could adjust their taxes and fees to support local needs. This has led to higher local taxes and fees that put more of the burden on the middle class. As a building contractor in Florida I have seen the cost of living here rise considerably over the last two decades. The cost of building due to impact fees, connection fees and permit fees in Brevard County have reached approximately $15,000 to construct a new house. It does not matter if the size of the house is a basic starter home of 1200 sq. ft. or a McMansion of 12,000 sq. ft., the fees are the same. The cost of living in Florida was always as much of an attraction as the sunshine, this is no longer the case. Property taxes, sales taxes and all types of local government fees have skyrocketed.
Ronald Reagan stated that our local government officials would know better how to spend the taxes they collected. I believe that the local elected and appointed officials are less educated, less regulated, and just as prone to personal agendas as any National politician or government official. This has led to a bigger waste of tax revenue. It seems to me that the two parties need to recognize that our economy is driven by consumers who need money to spend. Until they start supporting the middle class and not just the wealthy and the poor we will continue to struggle.
If you paid attention during the show, you will have noticed that the tax cut raised revenues always uses the 1986 tax cut, a time when high income taxpayers knew well in advance that the tax they would pay on the same income in 1987 would be 80% of the tax they paid in 1986. Is it any surprise that high income earners wages dropped significantly in 1986 and then ballooned in 1987? The big question is why the 1986 tax cut is used and 1981 tax cut is never used: 1) the % decrease in the top rates were higher in 1981 2) the prime rate peaked (at 20+%) just before the tax cuts went into effect and 3) we were coming off a recession. If the power of tax cuts on the economy was go great, the 1981 cuts would always be the point of reference and yet they never are.